| Spain borrowing costs spiral to euro-era record |
MADRID/LUXEMBOURG Spain’s medium-term borrowing costs spiralled to a euro-era record at an auction on Thursday, before an independent audit was due to reveal the size of a capital hole in Spanish banks which will be filled by a euro zone bailout.
Euro zone finance ministers will discuss how to channel up to 100 billion euros ($126 billion) in rescue loans to Spanish lenders weighed down by bad loans from a burst property bubble. Many in the markets see the package as a mere prelude to a full programme for the Spanish state.
“We have already started working on the design of the aid with the Commission, the European Central Bank and the International Monetary Fund,” Spanish Economy Minister Luis de Guindos told reporters as he arrived for the ministerial talks in Luxembourg. “We will present the request in the next few days.”
Spain’s financial plight is centre stage a week before a European Union summit tackles long-term plans for closer fiscal and banking union in an effort to strengthen the euro’s foundations, after bailouts for Greece, Ireland and Portugal failed to end a 2-1/2-year old debt crisis. To pave the way, the leaders of Germany, Italy, France and Spain will meet in Rome on Friday.
Madrid sold 2.2 billion euros in medium-term bonds and attracted strong demand. But yields on 5-year paper rose to a 15-year high of 6.07 per cent, a level regarded by analysts as unaffordable for any prolonged period. The runaway Spanish yields contrasted with a French auction in which the yield on 5-year benchmark paper hit an all-time low of 1.43 per cent.
“The first worry is can they (Spain) fund from the markets? They raised 2.2 billion versus a 2 billion target, so they can raise the money,” said Achilleas Georgolopoulos, a strategist at Lloyds in London. “Then the (question is), are the yields threatening for the medium term? And yes, clearly they are much higher than the previous auction ... But still they can continue for a few months to fund at these levels.”
Two independent auditors are due to deliver a report to the Spanish government on the recapitalisation needs of the banking sector following last month’s sudden nationalisation of Bankia.
De Guindos will present the findings to his euro zone colleagues in Luxembourg. Banking sources believe the report will say the lenders need to raise a further 60-70 billion euros. The ministers are also expected to ponder the next steps with Greece, following the formation of a coalition of mainstream parties committed to the country’s 130 billion euro EU/IMF bailout but determined to renegotiate some of the terms.
Reuters
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